Language school chain built on lavish ads, cheap labor

Comparisons have been drawn between the business practices used by Nova Corp. and the scandal-hit nursing care provider Comsn Inc., as well as the manner in which both firms fell from grace.

On June 13, the Economy, Trade and Industry Ministry suspended Nova for six months from signing up students on new contracts of one year or longer over misdemeanors that included lying to prospective students by telling them that they could book lessons any time they wanted.

On the same day, Goodwill Group Inc., the parent company of Comsn, announced the care provider would withdraw from the business after the Health, Labor and Welfare Ministry had earlier barred the issuance of care facility licenses to the firm due to fraudulent applications it had made to acquire such licenses and other discrepancies.

However, the paths taken by both companies seem to overlap in an oddly striking manner.

Both were run by extremely autocratic leaders who assigned employees excessive quotas to fill, and built up a network of either facilities or schools by investing large sums of money in advertising and publicity.

Nova’s rapid growth was supported by its colorful TV commercials, which gave birth to popular characters such as the Nova Rabbit, as well its inexpensive lesson fees.

During fiscal 2005, a year in which the company sharply increased new schools, it racked up 11 billion yen in publicity expenses–about one-sixth of its turnover in that period.

One trick Nova used to inflate its earnings was to treat a portion of students’ prepaid lesson fees as “enrollment fees.”

“I paid 320,000 yen in fees for additional lessons, but my contract said that 30,000 yen was for enrollment fees and 290,000 yen for lessons,” a student who renewed a contract in March 2005 said. “Every time I asked about this, I wasn’t given a satisfactory explanation.”

Accounting rules say enrollment fees can be posted as sale proceeds that can be used as operating capital. Thus, 30,000 yen was marked off as operating capital.

The low lesson prices also made Nova stand out from its competitors. The cost per lesson at other leading chains ranges from 2,300 yen to 5,000 yen, compared with about 1,800 yen a lesson for students who signed up for the longest contracts with Nova.

Rival chains wondered how Nova could keep prices so low and still stay in business. What made this possible was Nova’s doing everything in its power to cut labor costs.

About 80 percent of the nearly 1,000 new Japanese employees taken on each year were female. Despite having to meet each school’s strict contract quota and often having to work until late at night, the monthly take-home pay for a person in their fifth year at the company would be only about 180,000 yen.

“It’s our basic policy to have people quit while their wages are low,” a former executive and close associate of Sahashi said. “It’s better to have young women soliciting prospective students.”

With the average length of time an employee spends at the company being three years and seven months, Nova would have a fresh intake of new employees four times a year.

A Nova advertising sign states that “All instructors are native speakers.”

The 5,000 foreign instructors working at more than 900 schools also have been hit hard by recent events.

“I just got married, and things would be really hard now without my wife’s income,” said Bob Tench, a 49-year-old British teacher who has been with the company for 13 years.

Since September, when wages started to be paid late, many instructors have faced financial hardships and are being forced to return to their home countries.

Australian Foreign Minister Alexander Downer, seeing the plight of many Australian teachers who work for Nova, announced state support for them on the radio on Oct. 12.

Both the Australian and British embassies in Tokyo have been displaying information on legal and employment consultations on their Web sites since Saturday.

With this leading firm found to have violated the law and collapsed all too easily, the image of Japan’s English-language schools overseas has been dealt a severe blow.